Reacting to: HMRC urges customers not to ignore Simple Assessment letters (gov.uk (HMRC)) →
HMRC announced this morning that it is sending around 1.8 million Simple Assessment letters covering the 2025-26 tax year. The framing in the press release is about people ignoring them. My view is that the more common failure is quieter and more expensive: people open the letter, see a four-figure number they were not expecting, assume it must be a mistake, and put it behind the kettle until January.
It is usually not a mistake. And the reason it catches company owners in particular is structural rather than unlucky. PAYE collects the tax on your salary in real time and gets it broadly right. Nothing collects the tax on your dividends in real time. If you are not inside Self Assessment — and plenty of directors of small companies genuinely are not — the space between those two facts is exactly what a Simple Assessment letter exists to fill. The letter is not HMRC finding something wrong. It is HMRC finally invoicing for something that was always due, and the size of it is a function of how you paid yourself eighteen months ago.
What the letter actually is
The letter is officially a PA302. It is a tax calculation HMRC produces for you, rather than one you produce for HMRC, and it sets out how much is owed and why. HMRC issues one where there is tax to pay that it cannot collect automatically. Its own list of triggers is worth reading slowly, because most owner-directors will recognise at least one:
- tax due on interest on savings or dividends;
- a second income that has not been taxed;
- tax due on pension income;
- you received more tax-free allowance than you were entitled to;
- the tax simply cannot be collected through a tax code — HMRC gives "larger amounts owed, typically £3,000 or more" as the example.
That last bullet is the one that matters most here, and it is the reason this article is aimed at business owners rather than the general public. Small underpayments get quietly swept into next year's tax code and you never really notice them. Once the number goes past roughly £3,000, coding it out stops being an option and you get a demand instead. Dividends are very good at pushing a bill past £3,000.
Two other details from HMRC's release are worth having. The letters are generated automatically from data that employers, the Department for Work and Pensions and financial institutions send in — it is a routine annual process, not an investigation. And the timetable is staggered: working-age recipients started receiving letters from 30 June 2026, pensioners will start from 12 August 2026, and a second tranche goes out between October and December 2026 covering Bank and Building Society Interest data.
Putting real numbers on it
Here is an illustrative but entirely ordinary owner-director, using published 2025-26 rates — the year these letters cover. Salary of £30,000 through the company payroll, dividends of £30,000, and £900 of interest from a business owner's rainy-day savings account. Total income £60,900.
- The salary is already dealt with. After the £12,570 personal allowance, £17,430 is taxed at 20% — that is £3,486, collected through PAYE across the year. Nothing outstanding.
- The savings interest is mostly, but not entirely, covered. Total taxable income of £48,330 puts this director into the higher-rate band, so the Personal Savings Allowance is £500 rather than £1,000. That leaves £400 of interest taxed at 20%: £80.
- The dividends are where the bill comes from. The first £500 is covered by the dividend allowance. £18,870 of dividends fills the rest of the basic-rate band at 8.75%, which is £1,651.13. The remaining £10,630 falls into the higher rate at 33.75%, which is £3,587.63. Dividend tax: £5,238.75.
Nothing was collected on the dividends or the interest during the year. So the Simple Assessment letter says £5,318.75, and it says it in the summer after the tax year ended. On a £60,900 income, that is a bill worth about ten weeks of the salary — and the single most common reaction I see to a number like that is disbelief, followed by delay.
The same income produces a bigger letter next summer
This is the part that is genuinely forward-looking, and it is already legislated rather than speculative. The dividend ordinary and upper rates rose by two percentage points from 6 April 2026 — to 10.75% and 35.75%, with the additional rate unchanged at 39.35%. The dividend allowance stays at £500.
Run the identical director through the identical figures for 2026-27 and the dividend tax becomes £2,028.53 plus £3,800.23, or £5,828.75. The Simple Assessment letter that lands in summer 2027 will be £590 higher for taking exactly the same money out of exactly the same company. Nothing about the business changed. There is a further, smaller step behind it: savings rates rise to 22%, 42% and 47% from 6 April 2027, so the £80 in this example becomes £88 the year after that.
£590 is not catastrophic on its own. The point is that it is entirely predictable, it is already law, and the number of owner-directors who have adjusted their extraction or their reserve for it is small. This is precisely the calculation that belongs in a remuneration plan rather than in a letter.
What it means in practice — and it depends who you are
If you are an owner-director outside Self Assessment. Treat the letter as a cash-flow event with a known date, not a surprise. The deadline is 31 January 2027 unless your letter shows a different one, and HMRC allows payment in instalments before then. A bill that arrives in August and can be spread over five months is a very different problem from one discovered in January.
If you are a pensioner or you have a pension alongside a business. Your letters start from 12 August 2026. Pension income taxed through a code that was set on incomplete information is one of the most common reasons a PA302 appears at all.
If you hold meaningful cash savings. Watch for the October-to-December tranche built on Bank and Building Society Interest data. A letter received in the summer is not necessarily the last word for the year, which is a good reason not to spend the surplus the moment the first calculation looks manageable.
If you already file a Self Assessment return. You should not be receiving one of these for the same income at all. If a PA302 arrives anyway, that mismatch is itself the thing to investigate.
Three things to do this week
1. Sign in to your Personal Tax Account and look, rather than waiting for the post. HMRC says the letters appear there as well as on paper. Going to GOV.UK's Personal Tax Account and typing the address yourself gives you the number weeks before the envelope arrives, and it doubles as the safest possible scam check.
2. Check the calculation against your own records — dividend vouchers and bank interest certificates. HMRC builds the figure from what third parties told it. It does not know about anything it was not sent, and it is not infallible about what it was. Checking a PA302 takes about twenty minutes if your records are in order, and it is the only step in this process where you can actually change the answer.
3. Model next year's extraction at the new dividend rates before you draw anything else. The £590 above is the cost of not doing this for one modest director. Our guide on how to pay yourself from a limited company covers the mechanics, and the salary and dividend calculator will produce your own version of these figures in a couple of minutes.
What is still uncertain, and when you will know
Two things are genuinely open. The first is whether your summer letter is complete: with a second tranche of Bank and Building Society Interest letters scheduled for October to December, a saver's final 2025-26 position is not settled until that batch has been through. The honest advice is to hold the position open until the end of the year rather than assuming the August figure is final.
The second is the autumn Budget. The dividend rise to 10.75% and 35.75% is already law for the year we are in, so the £590 in this article stands whatever happens. What nobody outside the Treasury knows is whether the direction continues into 2027-28, on top of the savings-rate rise to 22%, 42% and 47% that is already scheduled for April 2027. That is a reason to have your extraction reviewed annually rather than a reason to guess now.
None of this is exotic. A Simple Assessment letter is the predictable consequence of an income mix that nothing taxes at source, and both the size of the letter and the date it lands can be worked out in advance. That is ordinary tax planning, it is built into what we do for clients on our packages rather than sold as an extra, and it is a much better conversation to have in July than in the last week of January.